Conceptual Framework and Accounting Standards Module for Diploma in

Accounting Technology
PRELIMS

Introduction: Conceptual Framework and Accounting Standards

Before diving into the world of intermediate accounting, it's important to establish a strong
foundation in the underlying principles that guide financial reporting. This introduction will
explore two key concepts:

1. Conceptual Framework:

The conceptual framework acts as the theoretical foundation for accounting standards.
It outlines the fundamental objectives and qualitative characteristics that financial
information should possess to be useful for decision-making.

Think of it as the "why" and "how" of accounting. The framework establishes the
overall goals of financial reporting and the essential qualities that make financial
information valuable to users.

2. Accounting Standards:

Accounting standards are a set of rules and guidelines that dictate how financial
transactions should be recorded and reported in financial statements. These standards
ensure consistency and comparability across different companies and industries.

Imagine accounting standards as the "building blocks" for constructing reliable financial
statements. By following established guidelines, companies can present their financial
information in a way that is understandable and comparable to other companies,
allowing users to make informed judgments.

The relationship between the conceptual framework and accounting standards is

analogous to a map and its legend. The conceptual framework provides the overall
direction and key features (objectives and characteristics), while the accounting
standards serve as the specific instructions for navigating the financial reporting
landscape.

Understanding both the conceptual framework and accounting standards is essential for:

● Preparing accurate and reliable financial statements.

● Interpreting and analyzing financial statements of different companies.
● Making informed decisions based on financial information.

As you progress through this module and delve deeper into intermediate accounting,
you'll gain a comprehensive understanding of these fundamental concepts and how they
are applied in practice.
 Conceptual Framework and Accounting Standards Module for Diploma in
Accounting Technology
PRELIMS
Unit 1

Introduction to Accounting: A REVIEW

Learning Objectives:

By the end of this module, students should be able to:

1. Define accounting and state its basic purpose.

2. Explain the basic concepts applied in accounting.
3. State the branches of accounting and the sectors in the practice of accountancy.
4. Explain the importance of a uniform set of financial reporting standards.

1. Definition of Accounting

Accounting can be defined as the process of identifying, measuring, recording, analyzing,

interpreting, and communicating financial information about a business entity.

Discussion Facts:

● Accounting provides a historical record of an entity's financial activities.

● It helps stakeholders like investors, creditors, and management make informed
decisions.

Problem-Solving Example:

ABC Company needs to know how much profit they earned last year. The accounting
process allows them to track their revenue and expenses, calculate the difference, and
present this information in a financial statement.

2. Basic Purpose of Accounting

The basic purpose of accounting is to provide financial information that is:

● Relevant: Useful for making decisions.

● Reliable: Free from material errors and bias.
● Faithful Representation: Accurately reflects the economic events of an entity.
● Comparable: Allows for comparison across different companies and periods.

Discussion Facts:

● Financial information helps assess an entity's financial health, performance, and

position.
● Stakeholders rely on this information to make informed decisions regarding
investments, lending, and resource allocation.
Problem-Solving Example:

A potential investor is considering investing in XYZ Corporation. They will use the
company's financial statements prepared by the accounting department to analyze the
company's profitability, debt levels, and future growth potential.

3. Accounting Concepts

Accounting is based on a set of underlying concepts that guide the recording and
reporting of financial information. Here are some key concepts:

● Accrual Accounting: Recognizing revenue when earned and expenses when

incurred, regardless of cash flow.
● Going Concern: The assumption that the entity will continue operating in the
foreseeable future.
● Monetary Unit Assumption: Financial statements are expressed in terms of a
common unit of currency.
● Matching Principle: Expenses incurred to generate revenue are recognized in the
same period as the revenue.

Discussion Facts:

● These concepts ensure consistency and accuracy in financial reporting.

● Applying these concepts allows for a more complete picture of an entity's financial
performance.

Problem-Solving Example:

Company M provides consulting services and sends invoices to clients at the end of the
month. Even if the client hasn't paid yet, under the accrual concept, Company M will
recognize the revenue in the month the services were rendered.

4. Common Branches of Accounting

There are various branches of accounting, each focusing on different aspects of financial
information:

● Financial Accounting: Prepares financial statements for external users like investors
and creditors.
● Management Accounting: Provides financial information to internal users like
managers for decision making.
● Cost Accounting: Tracks and analyzes the costs of producing goods or services.
● Auditing: Independently verifies the accuracy of an entity's financial statements.
● Tax Accounting: Assists businesses in complying with tax regulations and minimizing
tax liabilities.

Discussion Facts:
● Each branch plays a crucial role in ensuring the financial health and well-being of an
entity.
● Students pursuing a Diploma in Accounting Technology are likely to be involved in
financial and management accounting.

5. Four Sectors in the Practice of Accountancy

Accountancy professionals can work in various sectors:

● Public Accounting: Provides audit, tax, and other financial services to clients.
● Private Accounting: Employed by a company to manage its financial records and
reporting.
● Government Accounting: Works for government agencies to maintain financial
records and comply with regulations.
● Academia: Teaching accounting principles and practices to future generations.

Discussion Facts:

● The chosen sector will influence the specific skills and knowledge required of the
accountant.
● The Philippines has a strong demand for skilled accountants across all sectors.

Problem-Solving Example:

After completing your Diploma in Accounting Technology, you can choose to work as an
audit assistant in a public accounting firm or as an accounting associate in a private
company. Each path offers exciting opportunities to apply your accounting knowledge
and skills.

6. Accounting Standards

Accounting standards are a set of guidelines that define how financial transactions should
be recorded and reported. The Philippines adopts the Philippine Financial Reporting
Standards (PFRSs), which are converged with the International Financial Reporting
Standards (IFRS).

Discussion Facts:

● Standardized reporting allows for greater transparency and comparability of financial

statements.
● Understanding and applying accounting standards is essential for accurate financial
reporting.

Problem-Solving Example:

Company XYZ is unsure how to account for a long-term lease agreement. They can refer
to the PFRSs on Leases to determine the appropriate recognition and measurement of
the lease on their financial statements.
Learning Objectives - Recap

This module has covered the fundamental aspects of accounting. Remember, you should
be able to:

1. Define accounting and state its basic purpose. Accounting is the process of
managing financial information for informed decision-making. Its purpose is to
provide relevant, reliable, faithful, and comparable financial information.
2. Explain the basic concepts applied in accounting. Understand and apply key
concepts like accrual accounting, going concern, monetary unit assumption, and
matching principle for accurate financial reporting.
3. State the branches of accounting and the sectors in the practice of accountancy.
Recognize the different branches of accounting (financial, management, cost,
auditing, tax) and the sectors where accountants work (public, private,
government, academia).
4. Explain the importance of a uniform set of financial reporting standards.
Understand the role of PFRSs (converged with IFRS) in ensuring transparency,
comparability, and accurate financial reporting.

Conclusion

This module provided a foundational understanding of accounting. As you progress

through Intermediate Accounting 2, you'll delve deeper into specific accounting practices
for various transactions and financial statements. Remember, a strong grasp of these
fundamentals will equip you for success in your accounting studies and future career.